Post Office Schemes in India 2021

Posted by  Fintra , updated 2018-06-02

Post Office Schemes in India 2021

Post offices are not just about circulating letters and parcels. For a long time, the Department of Post under the Ministry of Communication of the Government of India has offered many investment plans and schemes for personal finances. These micro-finance investment plans are commonly referred to as “Post Office Schemes”.

If you're seeking a risk-free investment option that is also an ideal option for tax saving, then, the Post Office Schemes are a one-stop solution for you. These post-office savings schemes have especially been designed for urban and rural investors who are seeking a secured investment avenue and desire to gain the benefit of guaranteed returns. Since they're government-backed savings schemes, they are easy to get enrolled in and require limited documentation. They bear minimum risk as compared to the various other investment options.

As far as investment schemes go, these schemes are a safe and stable option, which is why many senior citizens invest their money in Post Office Schemes. In fact, during the recent Budget 2021 update, it was proposed to exempt the senior citizens from filing income tax returns if their pension income along with the interest income is their only source of annual income. Section 194P, which is a new law rule, was inserted to enforce banks to deduct tax on senior citizens more than 75 years of age having a pension and interest income from the bank.

Looking to invest in such schemes? This article has got you covered. We have prepared a list of everything you need to know about Post Office Schemes India in 2021. In this blog, Fintra will highlight the following points:

  1. What Are The Different Types Of Post Office Schemes?
  2. What Are The Differences Between Post Office Schemes And Fixed Deposits?
  3. How can You Open A Post Office Scheme?
  4. Early Withdrawal From Post Office Scheme
  5. Post Office Scheme VS Mutual Funds
  6. Rate Of Interest
  7. Tax
  8. Which One Should You Invest In? 

What Are The Different Types Of Post Office Schemes?

The Post Office Schemes consists of a list of schemes that provides risk-free and reliable returns on investments. These securities and returns are perks that an investor associates with the central government's various savings portfolios. The schemes can be availed at all post-offices of India, and one such prominent examples of these schemes are PPF that is operated in public sector banks as well as the post-offices in every Indian city.

Do note that most of all the post office investment schemes are tax-exempt under Section 80C. A few small saving schemes provided by Post Office includes the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Post Office Time Deposit for a 5 Year Term, and Senior Citizen Savings Scheme (SCSS). Do bear in mind that the interest rates for the schemes are reviewed every quarter by the Government. In other words, the rates applicable keeps changing.

There are a variety of Post Office Schemes to choose from, each plan with its unique features and benefits. Here is a list of all the schemes offered by the Department of Post Office:

PLEASE NOTE: THE BELOW GIVEN INTEREST RATES ARE FROM 01/04/2021 TO 30/06/2021

A. POST OFFICE SAVINGS ACCOUNT

B. 5-YEAR POST OFFICE RECURRING DEPOSIT ACCOUNT

C. POST OFFICE TIME DEPOSIT ACCOUNT (TD)

D. POST OFFICE MONTHLY INCOME SCHEME ACCOUNT (MIS)

E. SENIOR CITIZEN SAVINGS SCHEME

F. 15-YEAR PUBLIC PROVIDENT FUND ACCOUNT

G. NATIONAL SAVINGS CERTIFICATES (NSC)

H. KISAN VIKASH PATRA (KVP)

I. SUKANYA SAMRIDHI (SSY)

Benefits of Investing in Post Office Schemes

What Are The Differences Between Post Office Schemes And Fixed Deposits?

This is one of the most FAQs of investors, especially the first-timers. Most investors are confused between postal office schemes and fixed deposits. They wonder which one would be better for them. However, it all boils down to the investor’s needs, conveniences, and financial goals. 

If you are looking for a reliable, stable option, then you should go for post office schemes. The interest rate of post office schemes is pretty much fixed, while the interest rates of a bank FD may go up or down, depending on the economy. Thus bank Fixed Deposits are riskier, but there is also a chance of a higher reward.

In the case of bank Fixed Deposits, the minimum deposit amount is usually higher than that of a post office account. You must be an Indian to open a post office scheme, but there are no such restrictions in case of a bank Fixed Deposits. In fact, many banks offer a higher rate of interest to NRI investors. A post office account can be closed after six months but before one year. After that, you cannot close your account before its completion. On the other hand, most banks nowadays allow premature withdrawal or closure of accounts.

So here are the comparisons between post office schemes and fixed deposits. Do thorough research of your own, weigh in your options, and then choose carefully.

FD VS Post Office Saving Scheme

How can You Open A Post Office Scheme?

Opening a post office account is pretty simple. The minimum amount required for each scheme is stated above, as well as the required deposits to sustain the accounts. All you have to do is go to your nearest post office and talk to the branch superior and follow the below-mentioned steps:

Of late, the central government has authorized all public sector banks and private ones like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open Post Office Schemes.  

Early Withdrawal From Post Office Scheme

For a long time now, post offices of India have been offering investment schemes for personal, small-scale finance. Risk-free and stable, these post office schemes are very much preferred by the elderly, as they find such investment options reliable.

The Post Department of India offers several types of investment schemes such as the following:

These schemes have different rates of interest as well as different maturity periods. Premature withdrawal is allowed on most schemes. The conditions on premature withdrawal or closure in the schemes are:

Post Office Scheme VS Mutual Funds

In the previous articles, we have talked about different kinds of post office schemes, their features, the pros, and cons, how to invest in them, etc. When it comes to investment options, many people are confused about whether to invest in a post office scheme. Well, no need to fret, in this article we will compare the features, drawbacks, and benefits of post office schemes and mutual funds. After reading this article, you can make the investment choice that suits your financial needs and preferences the most.

Post Office VS Mutual Funds

When it comes to choosing between a post office scheme or mutual fund, here are some following features worth considering:

Rate Of Interest: Post office schemes are sponsored by the Government of India. So, as an investment option, it is definitely safer than a mutual fund. For most post office schemes, the rate of interest is fixed, payable monthly, quarterly, or annually. Also, post office schemes offer a maturity bonus. Mutual funds, on the other hand, offer better liquidity and returns. However, they do not have any fixed rate of interest and their returns depend on the condition of the market. In mutual funds, you can either make a big gain or a big loss. There is no such gambling in post office schemes. So, if are ready to take a risk in order to make a chunk of money, go for mutual funds. If you want your money to be safe and can settle for a lower rate of interest as long as it is regular and stable, stick to post office schemes.

Tax: Mutual funds offer a monthly dividend that is subjected to a dividend distribution tax of 10% per investor. If you choose to sell the units within a year of opening the account, then the gain would be subjected to your income tax slab. If you sell the units after the completion of one year, then you would gain a 10% long-term capital gain tax. The interest income of post office schemes is subjected to the subscriber’s personal income tax slab. However, most post office schemes are eligible for tax exemption under Section 80C of the Income Tax Act of 1961.

Which One Should You Invest In?

To answer this question, you can read through this article and decide for yourself. When it comes to investment options, there are no good or bad choices. It all depends upon your personal financial goals and needs. If you are looking for higher returns, it is advisable that you invest in a mutual fund. However, you should invest in a mutual fund with a maturity period of at least 2-3 years. On the other hand, if you do not want your money to be exposed to the capricious market and just want regular amounts of a fixed return, the post office scheme is perfect for you.

Conclusion

In conclusion, these Post Office Saving Schemes have managed to remain popular amongst Indians due to their feature of being low risk and easy availability. Post Office schemes in general are various investment avenues that inculcate the saving habits among the Indians. These schemes suit those who have a low-risk appetite, and the returns obtained from these schemes aren't prone to market fluctuations. For these reasons, the schemes are suitable investment tools for risk-averse investors who desire to make the most of their savings. Above all the major advantage of opting for them is that most of the schemes provide tax benefits under Section 80C of the Income Tax Act 1961 which one can avail with ease in rural and urban areas alike.

 

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